Explanations related to the draft Regulation to amend the Regulation respecting supplemental pension plans concerning variable payment life pensions

Application for registration of a pension plan
Section 1

Section 1 amends section 1 of the Regulation respecting supplemental pension plans (the Regulation) to provide that every application sent to Retraite Québec to register a plan that includes a variable payment life pension fund will specify the actuarial assumptions related to mortality used to determine the pension amounts. The assumptions will be used from the date of implementation of the fund to the date on which a pension adjustment report describing the applicable assumptions is sent. These assumptions must be determined by an actuary. They are not mentioned in the plan text.

Application for registration of an amendment to the plan to implement a variable payment life pension fund
Section 2

Section 2 amends section 2 of the Regulation to provide that every application sent to Retraite Québec to amend a plan in order to establish a variable payment life pension fund will specify the actuarial assumptions related to mortality used to determine the pension amounts. These assumptions are used from the date of implementation of the fund to the date on which a pension adjustment report describing the applicable assumptions is sent. These assumptions must be determined by an actuary. They are not mentioned in the plan text.

Financial report
Section 3

Section 11.4 specifies that the financial report must present the statement of changes in the net assets available for payment of the benefits distinctively for each variable payment life pension fund.

Content of the pension adjustment report
Section 3

Section 11.5 specifies the information that must be presented in the pension adjustment report required by section 15.13, proposed by section 7 of the draft Regulation.

The actuarial assumptions related to mortality that will be used to determine the pension amount are those specified in the last pension adjustment report sent to Retraite Québec.

Fees payable
Sections 5 and 6

Section 5 amends section 14 of the Regulation to require fees for the late transmission of a pension adjustment report.

Section 6 amends section 15 of the Regulation in order to increase the fee payable to locate untraceable persons to $30. It also provides that the fee will be indexed annually as of 31 December 2026.

Content of the plan text
Section 7

Section 15.9 of the Regulation specifies the elements that the plan text must contain regarding variable payment life pension funds.

It must indicate for each variable payment life pension fund the terms concerning variable payment life pensions, which include the member's or spouse's age and the conditions, where applicable, to obtain a variable payment life pension, the reference rate or rates offered, the payment frequency and the options of death benefits that can be chosen.

The plan text can therefore specify conditions to join a variable payment life pension fund. Despite the foregoing, under section 90.2 of the Supplemental Pension Plans Act (the Act), every member or spouse who reached age 55 must be able to obtain a variable payment life pension from at least one variable payment life pension fund implemented in the plan. Under proposed section 15.9, the plan text must specify the calculation method of the very first pension adjustment to take into account the return of the variable payment life pension fund. It must be understood that it will be mandatory to take into account the return of the fund between the date of transfer of the sums to the fund and the date of the end of the fiscal year, as provided for in section 15.17.

Regarding the mortality experience, the plan text can provide for the calculation method of the very first pension adjustment, allowing, where applicable, to take into account the experience from the date of transfer to the fund.

Minimum and maximum capital
Section 7

The purpose of section 15.10 is to allow the plan to provide for a minimum capital amount that can be converted into a variable payment life pension.

The plan text may also provide for a maximum cumulative amount per person that can be converted to a pension in the same fund or in all the funds for which the mortality experience is shared.

Requirement regarding assumptions related to mortality
Section 7

Section 15.11 requires, for all the funds for which the mortality experience is shared, identical actuarial assumptions related to mortality for the purchase of pensions.

Transfer of sums between funds
Section 7

The purpose of section 15.12 is to provide a framework for the transfer of sums between funds. The transfer of sums is only permitted between funds for which the mortality experience is shared. It must be made based on an adjustment report, which will indicate the amount of each transfer to be made and to which fund the sums must be transferred, as provided for in section 11.5.

Such a report, prepared by an actuary, is required, pursuant to section 15.13, each time an adjustment is calculated to take into account the mortality experience of the beneficiaries of the fund, where the mortality experience is shared among several funds included in the plan.

The sum to be transferred from a fund corresponds to the excess of the fund's assets over its liabilities. The amount must be determined after having made the calculations for the mortality experience (section 15.18) and for changes to the assumptions, if such is the case (section 15.19).  Pursuant to the fourth paragraph of section 15.18, the calculations provided for in sections 15.18 and 15.19 must be made by considering all the funds that share the mortality experience.

The sum to be transferred must be adjusted based on the return of the fund between the end date of the fiscal year and the date of transfer. The return can be negative, and the sum transferred can be less than the amount determined on the end date of the fiscal year.

The sums must be transferred immediately after the pension adjustment report is sent to Retraite Québec.

Valuation of the variable payment life pension fund
Section 7

Section 15.13 specifies the circumstances for which the variable payment life pension fund must be the subject of a valuation by an actuary:

• at least every three years;
• in the event of changes to the assumptions related to mortality;
• in the event of pension adjustments related to the mortality experience that is shared with other funds;
• where Retraite Québec requires it.

Where a fund is the subject of a valuation by an actuary, the actuary must valuate all the funds included in the plan.

A report made after the valuation must be sent to Retraite Québec within six months of the end of the fiscal year.

In other circumstances, the pension committee may adjust the pensions without the intervention of an actuary and without having to send a pension adjustment report to Retraite Québec.

Death benefits
Specifications
Section 7

Section 15.14 provides details about death benefits which can be offered by a variable payment life pension fund.

Paragraph 1 provides for the application of a limit where the fund offers a guaranteed capital refund type of death benefit, which corresponds to the excess of the amount transferred to the fund on the total of the pension amounts paid to the beneficiary of a variable payment life pension fund. The limit corresponds to the amount of the capital refund, established by taking into account the return of the fund since the date of transfer of sums to the fund. The purpose of the measure is to ensure that the fund is sufficient in the case of negative returns on investments.

Paragraph 2 indicates the calculation method of the benefit where the option of death benefits chosen by the member includes a guarantee period and the plan provides for payment of the death benefit in a lump sum.

Establishment of the amount of the variable payment life pension
Section 7

Section 15.15 lists the elements to take into account to establish the initial amount of the variable payment life pension. Therefore, the amount corresponds to the capital amount transferred to the fund divided by a pension factor beginning on the next payment provided for under the plan ^{See Note 1}. The pension factor takes into account the person's age and sex on the date of transfer, the assumptions related to mortality sent to Retraite Québec as well as the pension options and reference rate chosen for the pension.

Section 15.15 also defines the reference rate. The rate corresponds to the interest rate used to calculate the initial amount of the variable payment life pension and to adjust it thereafter. It cannot be changed after payment of the pension has begun.

Where the pension adjustment report establishing new assumptions related to mortality is sent, the amount of a pension purchased before the report is sent must be adjusted according to the method provided for in the plan.

Section 15.16 requires that payment of the pensions be made on a monthly basis, unless the plan provides for more frequent payments.

Adjustment of the variable payment life pension to take into account the return
Section 7

Section 15.17 specifies the adjustment method of the pension to take into account the return of the variable payment life pension fund during the previous fiscal year. That simple method consists in multiplying the pension amount by (1 + the fund's net rate of return) and dividing it by (1 + the reference rate of the pension). A return on the fund's investments higher than the reference rate will increase the pension.

The fund's net rate of return of the fiscal year will be calculated based on the information filed in the audited financial report, in order to ensure consistency, from one fiscal year to another, of the information used, regardless of the professional who makes the calculation.

For the very first adjustment of the pension to take into account the return of the variable payment life pension fund, it is mandatory to take into account the return of the fund between the date of transfer of the sums to the fund and the end of the fiscal year, according to the method provided for by the plan.

Adjustment of the variable payment life pension to take into account the mortality experience
Section 7

Section 15.18 specifies the pension adjustment method to take into account the mortality experience ^{See Note 2} of the beneficiaries of the fund, the purpose of which is to calculate the necessary percentage of adjustment to allow the fund's liabilities to be equal to its assets at the end of the fiscal year. The calculation must be made after those provided for in section 15.17.

Where the mortality experience is shared by two funds or more in the same plan, the necessary adjustment to take into account the mortality experience is the one that allows the total of the funds' liabilities to be equal to their assets at the end of the fiscal year.

This section specifies that the percentage of adjustment must be the same for all the beneficiaries of the fund or funds, except if the plan provides for a special method for the beneficiaries having joined a fund since the end of the last fiscal year for which an adjustment related to the mortality experience has been made.

Adjustment of the variable payment life pension to take into account a change to the assumptions related to mortality
Section 7

Section 15.19 provides that the pension will be adjusted further to the adjustments for the return and for the mortality experience, if the actuary makes changes to the assumptions related to mortality. The adjustment must be of the same percentage for all the beneficiaries of the fund.

Moment of adjustment of the pension amount
Section 7

The required calculations for the purpose of adjusting the pension are made as of the end date of the fiscal year of the variable payment life pension fund, whereas the adjustment of the pensions being paid can be effective at a later date.

Section 15.20 specifies that the pension amounts being paid must be adjusted not later than during the seventh month following the end of the fiscal year.

The content of the plan text must, under section 15.9, specify when the adjustment becomes effective and the time of year where the pension amounts are adjusted. For example, in a situation where variable payment life pensions are paid on a monthly basis on the 15th of the month, where the text provides that the adjustment becomes effective in January and where the pension amounts are adjusted in July, the payment of 15 July and the following payments must take the adjustment into account. The payment of 15 July would also take into account the amounts owed to the beneficiary or to be recovered given that the adjustment became effective in January. Section 163.1 of the Act applies to the recovered amounts.

Where the text provides that the adjustment becomes effective in July, no amount would be owed or recovered.

Redetermination of the pension
Section 7

Section 15.21 specifies how to redetermine the variable payment life pension to take into account the change in the death benefit where benefits are partitioned or transferred, or where the beneficiary applies for it further to the breakdown of a union.

The redetermined variable payment life pension will take into account the death benefit provided for by the plan in such a case, as though it had been chosen on the date on which payment of the pension began. The actuarial value of the redetermined pension must be the same as the one from the variable payment life pension before the new determination. The latter value must be calculated on the date of partition, based on the reduced pension after application of section 55.0.1, or on the date of the application, taking into account the death benefit that was chosen by the beneficiary.

Content of the summary
Section 7

Section 15.22 modifies the content of the summary of the plan where the plan includes a variable payment life pension fund.

Estimate statement
Section 7

Under section 15.23, the pension committee must provide a member or spouse who applies for a variable payment life pension with an estimate statement in order to present estimates of the pension amount he or she could obtain based on different options and reference rates offered by the plan.

The estimate statement must be provided within 60 days following the date of the application.

Section 15.23 specifies the requirements regarding the content of the statement, including words of caution useful for decision-making, given the irreversibility of the decision to join a variable payment life pension fund.

The statement must have one or more illustrations allowing a reasonable person to understand that the amount of the pension will vary after it has been determined. The format and content of those illustrations are at the discretion of the committee.

Notice of payment
Section 7

Section 15.24 requires that a notice of payment be sent, confirming that payment of the pension amount will begin as a result of the choice made by the member or spouse and taking into account the amount transferred to the variable payment life pension fund.

The notice of payment must be sent within 60 days after the sums have been transferred to the fund, but before payment of the pension begins.

Section 15.24 states the requirements regarding the content of the notice.

Annual statement of the beneficiary of the fund  
Section 7

Section 15.25 requires that an annual statement be sent to the beneficiary of the variable payment life pension fund at least 30 days before payment of the adjusted amount of the variable payment life pension. That section also provides for the content of the statement.

Date of termination of a variable payment life pension fund
Section 7

Section 15.26 defines the date of termination of a variable payment life pension fund.

At no time can the termination date of the fund be after the 1st of the month following the date of death of the beneficiary which reduces to less than 10 the number of beneficiaries of the fund who receive a life pension. The evaluation of compliance with the criterion of 10 beneficiaries therefore excludes the beneficiaries of the fund who receive a pension paid temporarily under a pension option at the time of death which provides a guarantee period.

The termination date of the fund is the date on which the benefits of the beneficiaries of the fund are determined, as provided for in section 15.31.

Case order of winding-up of a variable payment life pension fund
Section 7

Section 90.16 of the Act provides that Retraite Québec can order the winding-up of a variable payment life pension fund in cases prescribed by regulation. The order would only affect the variable payment life pension fund, not the plan.

Section 15.27 proposes the following cases:

• where the pension committee fails to comply with an order issued by Retraite Québec;
• where the number of beneficiaries of a variable payment life pension fund who receive a life pension becomes lower than 10. The evaluation of compliance with the criterion of 10 beneficiaries therefore excludes the beneficiaries of the fund who receive a pension paid temporarily under a pension option at the time of death which provides a guarantee period.

Notice of amendment to the plan for the winding-up of the variable payment life pension fund and information required if Retraite Québec decides to wind-up the variable payment life pension fund
Section 7

Section 26 of the Act requires that the members of the plan be informed where the plan is amended.

Section 15.28 provides for a 30-day period following the termination date of the fund to send the notice to the beneficiaries of the fund where the plan is amended to wind up the variable payment life pension fund.

It provides for a different period where the termination of the fund derives from a decision by Retraite Québec to wind-up the fund. In that case, the pension committee must, as soon as it receives the decision, notify the beneficiaries of the fund, any certified association representing members, and the employer. The notice must inform the beneficiaries that a statement showing the available payment methods of their benefits will be sent to them at a later time. The pension committee must also amend the plan as a result of this decision. The other members will be notified through the amendment process.

Requirement of a termination report of the fund (date and content)
Section 7

Section 15.29 provides that the pension committee must send a termination report of the fund to Retraite Québec generally within 90 days following the termination date of the fund.

Its purpose is also to identify the elements of the report that are required and the necessary statements of the actuary.

This section applies where the fund is terminated without the plan being terminated.

Section 15.30 applies in the event of termination of the plan. It concerns the content that must be added to the termination report where the pension plan includes a variable payment life pension fund.

Modifications of the termination report
Section 7

Section 207.2 of the Act requires that a report be prepared where a pension plan is terminated. That section allows the report to be prepared by the pension committee where all the benefits of the members and beneficiaries are made up of amounts credited to them. Section 15.30 requires that the report be prepared by an actuary where the terminated plan includes a variable payment life pension fund.

It also proposes that the same elements than those proposed by section 15.29 be included in the termination report as well as certain modifications of the content of the termination report provided for in section 64 of the Regulation.

Date and valuation method of benefits under a variable payment life pension fund during its wind-up
Section 7

Section 15.31 prescribes that the benefits of each beneficiary of the fund be valuated on the termination date of the fund and specifies how to determine the value to which each beneficiary of the variable payment life pension fund is entitled under a fund where it is wound up.

Each beneficiary is entitled to a share of the assets of a variable payment life pension fund in proportion to the beneficiary's liabilities over the total liabilities of the variable payment life pension fund. The value of the liabilities is determined on the termination date of the variable payment life pension fund.

Required statement and its content
Section 7

Section 15.32 determines the content of the statement sent to the beneficiary of the variable payment life pension fund affected by the winding-up.

The statement must be sent by the pension committee so that the beneficiaries have at least 10 days to indicate their choice and present observations.

The required statement provided for in section 15.32 is only for cases of termination of the fund without the plan being terminated.

Modification of the termination statement
Section 7

Section 15.33 provides for modifications to the content of the termination statement provided for in section 207.3 of the Act and section 65 of the Regulation to take into account benefits under a variable payment life pension fund.

Payment methods of benefits
Section 7

Section 15.34 specifies the possible payment methods for the beneficiaries of the wound-up variable payment life pension fund.

The beneficiary of the fund can choose between:

• obtaining an annuity established based on the value of benefits with an insurer chosen by the pension committee. The characteristics of the variable payment life pension that was being paid are maintained;
• transferring his or her share of the fund's assets to a pension plan referred to in section 98 of the Act (which includes the member's account under the plan where the variable payment life pension fund is wound up without the plan being terminated).

Where the beneficiary of the fund dies before payment of his or her benefits is made, the benefit is payable in a lump sum.

Default choice
Section 7

Section 15.35 imposes the purchase of an annuity with an insurer by means of the value of benefits where the beneficiary of the variable payment life pension fund does not provide his or her choice.

Payment of benefits of the variable payment life pension fund (authorization and period)
Section 7

Section 15.36 provides that payment of the benefits of the beneficiaries of the variable payment life pension fund, where the plan is amended to wind-up the fund, is subject to Retraite Québec's authorization.

The pension committee must make the payment during the period that extends from the 30th to the 60th day after the date on which the pension committee received Retraite Québec's authorization.

Accrual between the termination date of the fund and the payment date
Section 7

In accordance with section 15.37, the amount due on the termination date of the fund must be reduced from the pension amounts paid until the payment date. Interest must be taken into account depending on the return of the fund for that period.

Principles applicable to the benefits under a variable payment life pension fund
Section 13

Section 33.0.1 specifies the necessary modifications to all the sections of the division of the Regulation related to the transfer of benefits between spouses to take into account benefits under a variable payment life pension fund.

More specifically, it provides that a variable payment life pension is not considered as a retirement pension, that a member's benefits under a variable payment life pension fund are considered as capital benefits and that those benefits are presented separately.

Section 33.0.1 further specifies that the value of a variable payment life pension must be established separately and that the assumptions that must be used are those set out in the second paragraph of section 15.15 applicable on the date of the calculation.

Lastly, it provides that the interest to be credited on benefits as a fund corresponds to the return of the fund. Other proposed sections specify the period of accrued interest.

Aggregate benefits
Section 15

Section 15 amends section 36.1 of the Regulation to take into account benefits under a variable payment life pension fund in the member's aggregate benefits.

Calculation formula of benefits accrued during the marriage or civil union
Section 16 (1st paragraph)

Section 16 amends section 39 of the Regulation to simplify the calculation of the value of capital benefits accrued during the marriage or civil union. It will no longer be necessary to take into account the benefits paid between the date of the marriage and the valuation date. It also allows the information available to be used on the date closest to the marriage or civil union if the pension committee does not have the information on the date of the marriage or civil union. In that case, interest is calculated from the date on which the information is used.

Residual benefits
Sections 17 and 18

Sections 17 and 18 simplify the calculations required in sections 42 and 43 of the Regulation, applicable where the member's benefits were already partitioned. The calculation of the value of capital benefits accrued during the last marriage or civil union would be based on the formula listed in section 39 of the Regulation and the information available on the date closest to that event.

Valuation date other than the date of institution of the action and information not available
Section 19

Section 19 amends section 44 of the Regulation, to provide a framework for the situation where the valuation date is not the date of institution of the action and where information on the valuation date is missing.

The calculation of the value of capital benefits accrued during the marriage or civil union should be made by using the formula of section 39 of the Regulation, or section 43 of the Regulation in the case of previous partition.

Execution of partition
Section 21

Section 55 of the Regulation specifies the manner in which the member's benefits are reduced under the plan.

Section 21 makes modifications to that section to require that the variable payment life pension be reduced in accordance with the rules set out in section 55.0.1 where the benefits partitioned or transferred are benefits under a variable payment life pension fund.

Review of the pension amount after the execution of partition or transfer of benefits
Section 22

Section 55.0.1 specifies that where the amount paid to the spouse is deducted from a variable payment life pension fund, the amount of a variable payment life pension is reduced, on the date on which the partition or transfer of the benefits is executed, in the proportion that represents the amount paid to the spouse regarding that pension on the commuted value of the pension on that date.

Seizure
Sections 23 to 25

Section 23 amends section 56.0.2 of the Regulation to apply to the cases of seizure the principles set out for the benefits of a variable payment life pension where benefits are transferred in section 33.0.1.

Section 24 amends section 56.0.5 of the Regulation to specify that the amounts will first be taken from the capital benefits other than those under a variable payment life pension fund.

Section 25 amends section 56.0.6 of the Regulation to provide that the pension amount is reduced to take into account the sums paid, in the manner specified in section 55.0.1.

Documents that may be consulted
Section 26

Section 60 of the Regulation lists certain documents that may be consulted by eligible employees, members and beneficiaries.

Section 26 adds the pension adjustment report to it.

Items on the agenda
Section 27

Section 27 adds to section 61.0.11 of the Regulation the requirement to discuss the variable payment life pension fund at the annual meeting.